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On August 5, 1861, President Abraham Lincoln signed into law a new tax to help fund the United States government during the Civil War. Far more than writing a traditional revenue act to address the catastrophic war that had demonstrated its horrors just two weeks earlier at the Battle of Bull Run, Congress deliberately constructed the law to shift ownership of the American government away from the bankers who had previously provided Treasury funds, to the American people.
Over the next four years, the Republican Congress would put taxes on virtually every product in the country and then, to guarantee that “the burdens will be more equalized on all classes of the community, more especially on those who are able to bear them,” as Senate Finance Committee chair William Pitt Fessenden (R-ME) put it, they invented the nation’s first income tax.
In 1861, Congress levied a 3% tax on income over $800; in 1862, concerned that the level of taxation necessary to pay for the war would be too much for most Americans to bear, Congress placed a general tax at 3% and created a progressive income tax. It taxed income over $600 at 3% and income over $10,000 at 5%.
“The weight must be distributed equally,” Representative Justin Smith Morrill (R-VT) said, “not upon each man an equal amount, but a tax proportionate to his ability to pay.” In 1864, Congress revised those numbers upward. They put general taxes at 5% and raised the income tax brackets to 5% for income from $600 to $5,000 and 7.5% for income from $5,000 to $10,000.
Morrill thought it was important for the federal government to collect the tax directly to illustrate that people were supporting the United States of America, not individual states, as they might think if states collected the taxes. The federal government had a right to “demand” 99% of a man’s property for an urgent necessity, he said. When the nation required it, “the property of the people…belongs to the Government.”
Indeed, the new taxes did cement loyalty to the United States. With their money behind the war effort, Americans became more and more committed to their cause. As the war costs mounted, far from objecting to taxes, Americans asked their congressmen to raise them out of concern about the growing national debt. In 1864, Senator John P. Hale (R-NH) said: “The condition of the country is singular…I venture to say it is an anomaly in the history of the world. What do the people of the United States ask of this Congress? To take off taxes? No, sir, they ask you to put them on. The universal cry of this people is to be taxed.”
Enlisting more than 2 million soldiers and sailors into the war effort, moving them, equipping them, and arming them eventually cost the United States more than $5 billion. Taxes paid for about 21% of that cost.
Although Republicans invented the American income tax, party leaders in the modern era have turned against it.
In 1980, Republican president Ronald Reagan won the White House by promising that tax cuts would create such dramatic economic growth that Americans would be able to continue to fund popular programs despite those cuts. During the presidential campaign, Reagan’s rival for the Republican nomination, former director of the Central Intelligence Agency George H.W. Bush, called this promise “voodoo economics,” and he was right: the promise that tax cuts for the wealthy and corporations would pay for themselves never materialized. Instead, the national debt rose dramatically.
But the idea that tax cuts were a reliable solution to slow economic growth became Republican dogma.
Rejecting the principles Republicans laid down in the 1860s, Republican leaders ever since have taken the position that taxes do not build the country, but destroy it. Despite the rising national debt, that ideology continued into the modern era. In 2017 the Tax Cuts and Jobs Act, which lowered income tax rates across the board and offered most tax relief to the wealthy and corporations, became President Donald J. Trump’s signature law.
Those tax cuts eroded the revenue base of the U.S. government, sending the debt soaring. Nonetheless, in July 2025, Republicans passed Trump’s signature economic measure for his second term—the law they call the One Big Beautiful Bill Act—making permanent the tax cuts for the wealthy and corporations they passed in Trump’s first term. They offset some of the costs of that measure with dramatic cuts to programs that help the American people, including Medicaid and the Supplemental Nutrition Assistance Program (SNAP).
Even with those offsets, economists estimate that the One Big Beautiful Bill Act will add more than $4 trillion to the national debt in the next ten years. And now, Trump’s war on Iran is adding yet more strain to the national budget. But, rather than restoring the tax base Republicans have cut away—or even passing a wartime tax—the Trump administration maintains that cutting “waste, fraud, and abuse” will solve the problem of the growing debt.
Election results from yesterday suggest that the era of tax cuts as a solution to economic concerns may be coming to an end.
Voters in Missouri resoundingly rejected a Republican proposal to eliminate the state income tax and to replace missing revenue with a higher sales tax. The vote was not close: 83.3% of voters opposed the measure while only 16.7% were in favor, despite the fact that groups in favor of eliminating the tax—many of which kept their donors secret—outspent those in favor of keeping it by a margin of more than two to one.
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Notes:
https://www.cbo.gov/system/files/2026-02/61882-Outlook-2026.pdf
John P. Hale, Congressional Globe, 38th Congress, 1st session, p. 1925.
Joseph A. Hill, “The Civil War Income Tax,” Quarterly Journal of Economics, 8 (July 1894): 416.
Justin Smith Morrill, Congressional Globe, 37th Congress, 2nd session, p. 1194.
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